Obamacare's State Exchange Crack-Up

Hawaii's health insurance exchange teeters on the brink, and others struggle to find funding.


In February, the state of Hawaii, which is one of the states running its own health insurance exchange under Obamacare, confirmed that, like most other states and the federal government, it would be opening its exchange for a special enrollment period during the six weeks after tax season.

credit: NickiMM / Foter / CC BY

The somewhat unexpected idea, which originated a few months ago with congressional Democrats, was to allow individuals hit with a tax penalty for not carrying insurance last year to sign up for this year, and avoid another penalty as a result. The federal government, always amenable to implementation alterations that might boost Obamacare's sign-up numbers, announced that the federally run exchanges would hold special enrollment period for those people running from March 15 through the end of April, and most other states joined in as well.  

But the plan seems to have largely fizzled, or at least underperformed.

Only about 147,000 people signed up in the 36 federal exchanges. Another 100,000 or so signed up during the extra time in other states. In some places, the response rate was particularly weak: Hawaii, for example, didn't sign up a single person during its extended enrollment period. Not a solitary one—there were literally zero takers.

It is merely the latest ominous sign for Hawaii's exchange, which received more than $200 million in federal grants. And it is the most dramatic recent illustration of the ways that Obamacare's state-run exchanges continue to struggle well into the law's second year of full-on implementation.

Hawaii's Health Connector has struggled from the get-go, and for the last several months, the state-run insurance hub has appeared to teeter on the edge of existence. The state closed down the exchange for weeks as a result of technical problems following its initial launch in October, 2013. And over the last two months, reports have increasingly pointed toward the possibility that it may be shut down permanently due to lack of funding.

Hawaii's governor, Democrat David Ige, has admitted that the state currently has no way to fill what The Hill described last week as "a major funding shortage"—about $28 million over the next seven years, according to The Washington Post—compounded by ongoing technical malfunctions. If the state cannot prove that its exchange is workable and sustainable, it will eventually have to switch over to a federally run exchange, much like Oregon, another state that spent hundreds of millions in federal grant money on an exchange that ultimately failed. Both Ige and federal health bureaucrats are still officially holding on to the possibility that Hawaii's exchange might be able to stand on its own, but technical troubles still plaguing the sign-up system and no funding in place, it's hard to see how. The state admitted earlier this month that it had drawn up contingency plans for a shutdown

Hawaii's exchange is hurting for cash more than any other of the other state-run websites, but it's hardly alone in struggling for cash. Earlier this month, The Washington Post reported that "nearly half of the 17 insurance marketplaces set up by the states" and D.C. under Obamacare are "struggling financially," in ways that present "an unexpected and serious challenge" to the ongoing operations of the health law. "Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer call centers — and tepid enrollment numbers," the Post report said, leaving exchange officials to hunt for ways to pay for their systems.

Part of the problem is that the federal grant money that helped fund the development of the exchanges, and maintain them through their initial operating periods, has run out. Even if states put some away in savings, it's not clear they can use it: Medicare's Inspector General has warned that the use of these funds for regular operations appears to be illegal

But in other ways, operations now appear more expensive than expected. In Colorado, the exchange's call center was supposed to cost $13.6 million this year, according to the Post. New estimates put the cost at more than $21 million. As a result, the state is currently considering a major hike in the per-policy fee assessed to insurers selling on the exchange, more than doubling it from 1.4 percent to 3.5 percent. Technically it's a fee on insurers, but consumers end up footing the bill.

How does all this get resolved? For now, it's in something of a holding pattern. The troubled state-run exchanges might move to the federal exchange (some, including Minnesota and Vermont, are openly considering it), but reports from just a few months ago indicate that technical troubles persist behind the scenes with the federal exchange—and, more importantly, there's the looming Supreme Court decision regarding whether the federal exchanges can legally issue subsidies. No state will want to make any big decisions about its exchange before the ruling comes down.

The persistent troubles with the state-run exchanges, meanwhile, could complicate matters in the aftermath of a High Court decision as well. If SCOTUS rules against the administration, there will be a fair amount of pressure on states that never built their own exchanges to do so. But with so many state-run exchanges still flailing, that may not be a particularly easy or appealing choice, especially since the states that opted out were generally wary or outright opposed to Obamacare to begin with, and since there's no longer any federal funding to build new state-run exchanges—much less the generous, essentially open-ended stream of federal dollars that helped build the first round of state-run insurance portals.

Regardless of what the Supreme Court decides, none of this reflects particularly well on Obamacare or its backers. The states running their own exchanges were lavishly funded with federal grants, and they were the most politically gung-ho about the law. But even with practically limitless outside funding to get started, many of the law's most ardent supporters have yet to make it work, or convert more-or-less working exchanges into financially sustainable entities. In any case, Hawaii's ailing exchange and its financially struggling state-run siblings offer a reminder that Obamacare's failures and frustrations are far from over.

NEXT: More Reasons to Be Nervous About Amtrak: Illegitimate Federal Agent Hassles

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. One step closer to the federal take over and single payer. Victory is at hand!

    1. Single pauper is not happening. There’s no money for it.

      1. And when has that ever stopped government from doing something?

      2. That’s what the printing presses are for.

        1. That works until it doesn’t. Even Zimbabwe’s government gave up on that, incredibly.

          1. They’re waiting for a shipment of Venezuela’s Secret Sauce of “Success….”

      3. You keep saying that, but you continue to ignore the fact that lack of money has never stopped the government from doing anything.

        1. You and Andrew are wrong. Lack of money stopped the Canadian government from expanding in the ’90s and forced cutbacks. The Beast needs money and printing presses only work for a while.

          1. American politicians aren’t that smart.

            1. Dumber than Canada’s!?!?!

              1. Obviously. Canada’s politicians appear to be capable of learning from their mistakes. American politicians are as capable of learning as Tony.

            2. Eh, US had cutbacks in 90s as well. Didn’t last there, but they didn’t last up here, either.

              1. US had cutbacks in 90s as well.

                No it didn’t. A slower rate of growth is still growth.

                1. Didn’t DoD take it in the nuts? As well as welfare spending?

                  And cuts had nothing to do with smartness, as with desperation. As per Wikipedia (yes, yes)

                  Outside of defense spending, there were few cuts in the 1994 budget. In a radio interview with Ron Collister in March 1994, Chr?tien stated: “To go to our goal of 3 per cent of GNP, all the cuts been announced in the budget. There will not be a new round.”

                  in May 1994, Moody’s downgraded Canada’s debt
                  As a result, investors cease buying government of Canada bonds, which forced the Bank of Canada to raise the interest rates in order to attract buyers of Canada bonds.
                  Chr?tien was not keen on making deep cuts to government spending, but given the crisis caused by the skyrocketing interest rates had decided “reluctantly” there was no alternative.

                  So literally, it was cuts or defaulting – put US in the same situation, and cuts will be coming.

                  1. Exactly. Recall, Paul Martin and the Liberals are seen as geniuses for having balanced the books while the left tagged them as neo-liberals.

                    1. Paul Martin did a good job. He fought a battle against the big spenders in his party, and won. He saved Canada’s butt. And, he prevented the banks from ‘competing’ in the open marketplace as they wanted to. Because of that our banks did not fail.

                      I won’t give Chretien any due, but I think Martin deserves some credit.

                    2. Meh. He messed around with the numbers but I’ll reluctantly agree.

                      “And, he prevented the banks from ‘competing’ in the open marketplace as they wanted to.”

                      Not following. I would think competing in an open market place is a good thing?

          2. The Canadian health care system is actually awash in cash. We spend more on health per capita than any country except for the USA. It’s the access, overall labor costs, and actual management (in general) the problem; along with the fact it’s cost-centric and not patient-centric which only adds to the miserable conditions.

            1. Hey Rufus….I just got a ticket for the 200 level at United Center tonight…. C’MON HAWKS, DAMMIT!

            2. We have a fantastic medical system, provided you don’t get sick with anything a little out of the mainstream. Or, something only men get. Or, something that is hard to define. Or, your specialist is an idiot. Or, your doctor retires. Or….well in fact, we have a lousy medical system.

              1. It’s awesome until you need it! And if you can get timely access to it!

      4. Look at the money currently rolling around the US health insurance industry. All of it goes into single payer, one way or another. And once the thing is up, it becomes an item of religion, beyond any cuts. Hell, Tories in UK, when they made their “deep cuts”, explicitly ring fenced the NHS, because they had to (and Foreign Aid, because they are paternalistic twits).

        Also keep in mind, if single payer goes through, it will be because of left-wing wave, which will leave DoD cut and taxes increased in its wake.

      5. Vermont was smart enough to accept this and scrapped the idea.


      6. Well you know there is tons of money just sitting there in IRA’a and 401K’s not doing anything. And you know it really is totes unfair that most people didn’t have the chance to save for retirement because of the predations of the market forcing them into minimum wage jobs.

        I am sure we could find some way to redistribute all that money by nationalizing it into a new Social Security system built around single payer health care.

        1. That would be a good consulting opportunity for Gordon Brown!

        2. Fill the Treasury and SS “Trust Fund” with Obamacare medical device tax backed bonds!

        3. How about taking the money promised to federal government workers for their retirement and health care, and using it instead?

      7. Of course “single pauper” isn’t going to happen. They won’t be satisfied unless we have collective paupership!

  2. Peter,
    You need to proof that article. I’m sure something was and ahs, too!

  3. “Obamacare’s State Exchange Crack-Up”

    I vote we switch to more Brit-centric expressions and call this a “cock-up”.

    1. “Well – this is a bit of a pickle, now, isn’t it?!”

      “I’ll say! A regular kerfuffle, it is!”

  4. You mean Hawaii’s uber competent and thrifty government couldn’t create a workable exchange, despite boatloads of money being dumped into it, to the tune of over a hundred dollars per resident? I am shocked.


  5. This kind of thing is why I am pretty sure Obamacare does not have the permanence of say Medicare. Not enough pogey, too dysfunctional, too much pain.

    1. Yet every day when I inevitably put on NPR on the drive (I hate commercials so I always end up drifting there) there’s some swooning story about how Obamacare has given people access to health care that they didn’t have before. Every single day. There are a lot of people out there whose only problem with Obamacare is that it didn’t go far enough.

      1. I thought you said you hated commercials.

        1. Boom again. +5 points for subtlety.

        2. I can only listen to the same Lumber Liquidators advertisement so many times before fighting the urge to swerve into the path of an oncoming semi. At least NPR’s commercials are different every time. Besides, when they’re not covering politics, they can be pretty good.

          1. Howie Carr has the best ads; some are obviously conservative and hilarious.

          2. Methinks you didn’t get pl?ya’s joke

      2. Well yeah but that’s NPR. There’s always crazy, but it’s not always in control.

  6. How long before we get another fawning magazine cover picturing one of the Obama-friendly tech-giant ceos with the caption about how they saved the Obamacare exchange?

    1. I forgot about that! Man, that got *5* minutes of fame and, poof! As invisible as Hillery at a press confab!

      1. I have a steel trap memory for that kind of shit. Yet I can’t remember what I had for dinner last night.

  7. You know who else wanted to take over health care?

    1. Dr. Bronner?

    2. Clement Attlee?

      1. Josef Mengele?

    3. Dr. Moreau?

      1. Nice….bringing in the classics.

    4. Dr. Oz?

    5. Hittler?

      Joanie Hittler, with whom I attended college – she went into medicine, IIRC…..


      1. Joanie Hittler: Head of Eugenics and Enhanced Selective Humans Department.

        1. “Ziss iss zee next zet of experiments vee vill be performing…”

      2. Did you hitt’er?

      3. Now what kind of family would not change their name say, I don’t know, in 1946 for example?

  8. “Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer call centers ? and tepid enrollment numbers,” the

    Ok, someone explain how the tepid enrollment numbers affect the state exchange bottom line? Less-than-expected traffic is putting increased pressure on the websites?

    Does the exchange get a percentage of every policy sold through the private insurers on the exchange?

    1. I think he’s saying that the exchanges are wrestling with surging costs (with examples) and (unrelated to the costs) also low enrollment. The low enrollment presumably is not a problem for the actual exchange software/hardware, but is a problem for the exchange bureacracy/organization. At least, that’s how I read it.

      1. One of the examples given was surging call center costs. If the enrollment is abysmally low, shouldn’t the call center sound like the Maytag repairman’s office?

        1. Not if each caller is complaining about a broken site and takes 2 hours to have the human operator help fill out the form by hand.

    2. Charge ’em for the lice, extra for the mice
      Two percent for looking in the mirror twice
      Here a little slice, there a little cut
      Three percent for sleeping with the window shut
      When it comes to fixing prices
      There are a lot of tricks I knows
      How it all increases, all them bits and pieces
      Jesus! It’s amazing how it grows!

  9. But even with practically limitless outside funding to get started, many of the law’s most ardent supporters have yet to make it work, or convert more-or-less working exchanges into financially sustainable entities.

    I don’t even know where to begin. Fuck it, you all know what’s wrong with anyone’s notion that this would end any differently. I don’t need to draw you a picture of me spelling it out for you with a map.

    1. But shriek, tony and amsoc do. Shriek thinks this is “the free market”, tony doesn’t care and amsoc is cheering it on.

  10. Meh. I always wanted single payer anyway.

    /prog surveying the burning mess.

  11. What ever happened to the wonder whiz woman they hired to fix what ailed whatever this monstrosity has become?

    1. She’s dead, Jim

      1. What do you mean?

        1. Apparently, she said something bad about the Clinton’s.

  12. Since I have it on good authority that these exchanges are market-based, does that make this a… market failure?

    *attempts to put on shades, drops them in kiddy pool full of vodka instead*


  13. This is why we need to turn the VA into a national health care service.
    “Come one, come all!”

  14. Those sons of guns better take care of Magnum and Higgins, that is all I know.

  15. Someone I know well works as an executive admin for the state’s exchange and keeps minutes during meetings. She’s complained a few times about a very partisan conservative doctor who sits on the board and takes every opportunity to critique the law. I sent her an article about the collapsing exchanges, and she quit discussing her job with me.

  16. It’s absolutely mind boggling that any program can be given 200 million in grants in just two years and be clamoring for additional funding. Hells bells, you could just pay outright for everyone’s healthcare and fire all the gubmint employees with that much cash. I am constantly amazed at how fucked up we are. If we think we’re the greatest nation ever, I’m really stretching to find the metrics for that claim…

    1. The others are worse?

    2. Yeah. I laugh these days when a Pol starts talking about the US developing solar, going to Mars, or any big project.

      We couldn’t even dig the Panama Canal these days if we tried.

      1. Apparently China is putting a new canal through Nica. Anyone else heard that?

        1. That was always easier than Panama given the hydrology. I think Panama exists just because of sheer American willpower.

          1. And the fact that TR could foment a bit of a revolution.

    3. My daughter and SIL live in Hawaii. Know what really burns her about the whole healthcare signup mess?

      If she isn’t constantly vigilant there are dozens of utterly reliable websites my four-year-old grandkids can easily navigate to sign up for all kinds of programs. None of the companies running them got a dime in government subsidies.

  17. $200 million investment that probably will be scrapped.

    You know why they had each state have its own exchange, right?

    State insurance commissions are full of bureaucrats who need to regulate something.

    If the Feds took over health insurance, then those commissions would serve no purpose.

    Thus, to bribe them into accepting the ACA they made sure state insurance commissions had a role.

    1. So…just to let that sink in, they could have at least eliminated an entire level of state regulatory bureaucracy as a cost savings, then had one federal exchange, and had a national marketplace, to boot.

      But progressives can’t even be efficient big government types. Not enough room for graft. So every bureaucrat is saved, and 50 states x 200 million is spent. Plus state by state advertising that could have been done nationally.

  18. This is just more evidence of Harry Brown’s maxim that government doesn’t work.

  19. Start making cash right now… Get more time with your family by doing jobs that only require for you to have a computer and an internet access and you can have that at your home. Start bringing up to $8596 a month. I’ve started this job and I’ve never been happier and now I am sharing it with you, so you can try it too. You can check it out here…

  20. Start making cash right now… Get more time with your family by doing jobs that only require for you to have a computer and an internet access and you can have that at your home. Start bringing up to $8596 a month. I’ve started this job and I’ve never been happier and now I am sharing it with you, so you can try it too. You can check it out here…

  21. Start making cash right now… Get more time with your family by doing jobs that only require for you to have a computer and an internet access and you can have that at your home. Start bringing up to $8596 a month. I’ve started this job and I’ve never been happier and now I am sharing it with you, so you can try it too. You can check it out here…

Please to post comments

Comments are closed.